YOUR MONEY: Using a personal loan to pay off my bond

Question:

Ten years ago I bought a house that cost R510,000; my housing loan sits at R280,000 and I still have 10 more years of payment.

I’m able to get a personal loan to pay it off. Is it worth taking the offer so I can have the house paid off and deal with the personal loan?

I plan on paying off the personal loan in less than three years. Please advise.

— A Fat Wallet Facebook community member

Answer:

I very much like less debt, and taking a personal loan to pay off the remaining home loan is certainly an option. The seven years saved with the shorter personal loan should be a significant amount — but do run the numbers.

How much will the personal loan cost, including interest, vs the remaining cost of paying off the home loan?

It’s likely that the personal loan will be at a higher interest rate, though the quicker payments could well offset that extra interest.

What’s more, if you do pay off the debt in three years, you could switch that monthly debt payment into a monthly payment into an investment, adding to the overall benefit of paying off the home loan faster.

— Your Money team 

Next week we look at a question from an 82-year-old widow who wants her children to benefit from her life insurance policies, but can’t keep up with her premium payments.

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